Japanese House Tax (Germany, France, and Great Britain / Japan)

This dispute concerned perpetual leases entered into by Japan with foreigners, aimed at giving them access to real property for the establishment of foreign neighborhoods. The foreign settlements were to remain outside the Japanese municipal system, and the foreign occupants of the land were therefore not obliged to pay taxes. In 1894 and 1896, the Japanese government wished to abolish the system of foreign concessions, and for this purpose entered into treaties with the governments of Great Britain, Germany, and France. These treaties provided for the leases to be held in perpetuity and granted exemptions from taxes and other charges. A dispute arose between the Parties when Japan asserted that only the land itself, but not the buildings constructed on it, enjoyed exemption from the payment of taxes.

The Parties agreed to submit the dispute to arbitration. The Tribunal noted that the land was leased for building purposes, and the leases often contained a clause vesting title to the buildings in the Japanese government in the event the lessee failed to fulfil his obligations. By becoming a party to the leases, it found that the Japanese government had acted, not only as proprietor of the land, but also as sovereign power. Having regard to the practice which had been followed in the relevant localities, the Tribunal found that the buildings as well as the land had in fact been exempted. By a majority of votes, the Tribunal rejected the arguments of the Japanese government. The Japanese arbitrator stated his disagreement with the reasoning and result of the award.